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Trump: is a strong US dollar good?

On Wednesday, the Trump Administration came out and said that the US dollar “is getting too strong.” Trump believes that the Federal Reserve is keeping the federal funds rate at too high of a level which is creating a stronger than necessary US dollar. Donald Trump came out and said that he is a firm believer in low interest rates, but the question is to whether he thinks the economy needs a weak dollar. People can debate for days as to whether the economy is better off with a strong dollar or a weak dollar because there has been instances where economic growth has happened in both cases over the years. In Reagan’s first term, high interest rates caused the dollar to soar at high levels and the economy went with it. On the contrary, in Reagan’s second term, interest rate cuts actually boasted the economy and the dollar plummeted.

The fact that there are instances in history where economic growth can come from both a weak dollar and a strong dollar makes things very complicated when making decisions about what to do in the present state of the economy. Usually, a weak dollar can be seen to help a troubled economy which makes sense as to why Trump thinks lower interest rates are needed at the moment. The President does not believe that the economy has fully recovered since the Great Recession in 2008, so it makes sense for him to think that a weaker dollar is needed. But, has the economy actually recovered and what is the current state of the economy? Since 2009, the unemployment rate has almost dropped by five percent and the GDP has now recovered to positive growth. So is the economy as bad as Trump may think?

It is tough to tell if the economy is accelerated or not, but Trump’s comments did cause the dollar to take a sharp decline against other foreign currencies. The dollar is now down two percent in 2017, but it is also still up two percent since the election in November. One of Trump’s policies that he promised in his campaign was to bring back US manufacturing. A falling dollar would cause a decline in the price of US produced goods and raise the prices of foreign goods from China and Germany. So, a weak dollar in turn could actually boast the sale of goods produced in the US. Could this help Trump reach his goal of four percent growth in real GDP? It is possible, but even though Trump may be wrong in some instances, at least he prefers the right monetary policy that would benefit his campaign promises.

4 thoughts on “Trump: is a strong US dollar good?”

It is interesting that soon after Trump made public comments about having too strong of a dollar, that it actually dropped sharply. Since the dollar is at its highest level in 13 years, it is becoming more expensive for American goods to other countries like Europe and Japan. I am curious to see what kind of policies Trump enacts in the coming months of his presidency.

I too find it interesting that the president’s comments could have that much of an impact on the dollar. What other methods could Trump use to further devalue the dollar in order to fulfill this campaign promise?

After reading this article, I wonder if there is some natural process that would weaken the dollar or if it completely relies on monetary/fiscal policy. Does an equilibrium level exist based on the supply and demand for the dollar domestically and abroad? I also wonder what the impact of actively weakening the dollar would be…who would be the winners and losers in that case? While it would clearly benefit American firms exporting abroad, it could potentially hurt them as well by raising the relative price of imported raw materials. I ultimately wonder how it could affect the dollar’s status as a world reserve currency.

As a general rule, a weak dollar helps those people and firms selling goods to foreigners or competing against foreign goods. A strong dollar helps those buying foreign goods. To the extent you want to help American manufacturers, Trump is right to favor a weak dollar. To the extent you want to help American consumers, you want a strong dollar.

The real problem with Trump’s ideas is that not everyone in the world can have a weak currency at the same time, so any attempt to weaken the dollar is likely to be met with counter-policy in other countries to weaken their own currency.